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Core Viewpoint - Investors in the Banks - Southwest sector should consider Texas Capital (TCBI) and Cullen/Frost Bankers (CFR) for potential value opportunities [1] Group 1: Zacks Rank and Earnings Outlook - Texas Capital has a Zacks Rank of 1 (Strong Buy), while Cullen/Frost Bankers has a Zacks Rank of 2 (Buy), indicating a stronger earnings outlook for TCBI [3] - The Zacks Rank system emphasizes companies with positive earnings estimate revisions, suggesting TCBI is likely experiencing a more favorable earnings outlook [3] Group 2: Valuation Metrics - TCBI has a forward P/E ratio of 13.53, compared to CFR's forward P/E of 14.37, indicating TCBI may be undervalued [5] - TCBI's PEG ratio is 0.50, while CFR's PEG ratio is significantly higher at 5.38, suggesting TCBI offers better value relative to its expected earnings growth [5] - TCBI's P/B ratio is 1.41, compared to CFR's P/B of 2.11, further supporting TCBI's valuation attractiveness [6] Group 3: Value Grades - TCBI has earned a Value grade of B, while CFR has a Value grade of C, indicating TCBI is viewed more favorably by value investors [6] - Stronger estimate revision activity and more attractive valuation metrics position TCBI as the superior option for value investors [7]

Year-over-year, consumer checking households grew by 5.4%, a figure we believe positions us at the forefront of the industry in terms of organic growth. Mortgage lending also reached new heights this quarter with record performance across key metrics such as dollars funded, number of loans closed and solution referrals. Based on current momentum, we expect Q4 to surpass these records and we are confident of reaching our year-end goal of $0.5 billion in mortgages outstanding. Our overall consumer real estate ...

Financial Position - Cullen/Frost had consolidated total assets of $53.0 billion as of December 31, 2025, making it one of the largest independent bank holding companies in Texas [16]. - Frost Bank, the principal operating subsidiary, reported total assets of $53.1 billion and total deposits of $43.3 billion as of December 31, 2025 [22]. - The estimated fair value of trust assets managed by Frost Bank was $51.0 billion, including managed assets of $26.7 billion and custody assets of $24.3 billion [32]. - Cullen/Frost could pay aggregate dividends of approximately $977.4 million to Cullen/Frost without obtaining affirmative governmental approvals at December 31, 2025 [48]. - As of December 31, 2025, approximately 52% of the company's deposits were uninsured, which poses a liquidity risk if a large number of depositors withdraw their accounts [130]. - The company has experienced significant unrealized losses in its available-for-sale securities portfolio due to elevated market interest rates, which could impact liquidity if securities must be sold at a loss [131]. Regulatory Compliance - Cullen/Frost is subject to extensive regulation under federal and state laws, impacting its operational strategies and financial condition [35]. - Cullen/Frost and Frost Bank must maintain a minimum Common Equity Tier 1 (CET1) ratio of at least 4.5%, plus a 2.5% capital conservation buffer, resulting in a minimum CET1 ratio of 7.0% [58]. - The Basel III Capital Rules require a minimum Tier 1 capital ratio of 6.0%, plus the capital conservation buffer, resulting in a minimum Tier 1 capital ratio of 8.5% [58]. - Cullen/Frost and Frost Bank are required to comply with applicable capital adequacy standards under the Basel III Capital Rules, which include specific risk-based capital ratios [55]. - The Federal Reserve Board requires bank holding companies to act as a source of financial and managerial strength to their subsidiary banks [54]. - Cullen/Frost and Frost Bank are subject to limitations on capital distributions, including dividends and share repurchases, if they fail to meet effective minimum capital ratios [56]. - The Federal Reserve Board has the authority to impose limitations on a financial holding company's activities if it ceases to meet capital and management requirements [43]. - The Federal Reserve requires bank holding companies with consolidated assets over $50 billion, including Frost Bank, to maintain a risk committee to oversee risk-management policies [80]. - Frost Bank is required to submit periodic resolution plans to the FDIC due to its total consolidated assets exceeding $50 billion, with the initial filing due on April 1, 2026 [81]. - The Federal Reserve requires prior approval for the acquisition of more than 5.0% of the voting shares of a commercial bank by a bank holding company [46]. Operational Strategy - Cullen/Frost's operating objectives include growth of fee-based income and expansion through acquisitions, although the current focus is on organic growth [19]. - The company evaluates merger and acquisition opportunities, which may involve dilution of tangible book value and net income per common share [19]. - Cullen/Frost's repurchases of common stock may be subject to prior approval or notice requirements under Federal Reserve regulations [50]. - Potential acquisitions may disrupt business operations and dilute shareholder value, with risks including exposure to unknown liabilities and potential asset quality issues [173]. - Regulatory approvals for acquisitions could be delayed or denied, impacting the company's ability to pursue strategic opportunities [176]. Community Engagement and Corporate Culture - In 2025, employees performed over 27,000 hours of community service, reflecting the company's commitment to community engagement [115]. - The company emphasizes a corporate culture of integrity, caring, and excellence, aiming to attract and retain top talent while promoting a safe and supportive workplace [114]. - The board of directors is focused on overseeing corporate culture as a critical element of risk management, holding senior management accountable for maintaining this culture [113]. - Frost Bank received a "satisfactory" rating in its most recent Community Reinvestment Act performance evaluation, which is crucial for regulatory approvals of new activities [94]. Risk Management - The company has a structured approach to risk management, particularly concerning lending risks and the potential impact of economic conditions on borrowers' repayment abilities [123]. - The company maintains allowances for credit losses, which are subject to significant estimates and could impact net income if actual losses exceed these allowances [125]. - A significant portion of the loan portfolio is secured by real property, exposing the company to environmental liability risks that could materially affect its financial condition and results of operations [128]. - The company is subject to interest rate risk, which could adversely affect net interest income and overall earnings if interest rates on deposits rise faster than those on loans [122]. - The company is exposed to risks from the soundness of other financial institutions and counterparties, which could lead to credit risk and financial losses [157]. Technology and Cybersecurity - The financial services industry is undergoing rapid technological change, and the company's future success depends on its ability to effectively implement new technology-driven products and services [135]. - The SEC requires banking organizations to disclose material cybersecurity incidents within four business days, emphasizing the importance of cybersecurity risk management [103]. - The company faces risks from potential failures or breaches in its information systems, which could disrupt operations and compromise sensitive data [143]. - The rapid development of quantum computing poses a material risk to encryption standards, potentially leading to unauthorized decryption of sensitive data and financial losses [146]. - The company relies on external vendors for essential products and services, which introduces operational and cybersecurity risks [150]. Economic and Market Conditions - The company's operations are significantly affected by economic conditions in Texas, with local economic downturns potentially leading to adverse effects on business performance [156]. - Changes in customer behavior due to external economic factors could materially affect the company's ability to meet regulatory requirements and anticipate business needs [141]. - The competitive landscape includes substantial competition from larger financial institutions and fintechs, which may lead to pricing pressures and loss of market share [158]. - The emergence of new technologies and disintermediation could significantly affect competition for financial services, potentially leading to loss of fee income and customer deposits [162]. - A prolonged U.S. federal government shutdown could disrupt operations, delay loan originations, and increase credit risk exposure due to impaired financial capacity of borrowers [170]. Environmental and Climate Risks - Climate-related risks may negatively impact both the company and its customers in the short and long term [194]. - Climate change may lead to more frequent extreme weather events, affecting the value and productivity of the company's assets and increasing operational disruptions [195]. - The company is at risk of conflicting legal or regulatory requirements regarding climate change, which may increase compliance costs and operational risks [196]. - Negative public opinion related to climate-related actions or inactions could harm the company's brand and its ability to attract and retain employees [196]. Financial Performance and Capital Needs - The company may need to raise additional capital in the future, which may not be available on acceptable terms, adversely affecting liquidity [187]. - Stock price volatility may complicate the resale of common stock, influenced by various market factors and economic conditions [189]. - The company may not continue to pay dividends on its common stock in the future, which could adversely affect stock market prices [178]. - Changes in federal, state, or local tax laws could negatively impact financial performance and lead to challenges from tax authorities [186].

Core Insights - Cullen/Frost Bankers, Inc. (CFR) reported strong fourth-quarter 2025 adjusted earnings per share of $2.57, exceeding the Zacks Consensus Estimate of $2.47, and up from $2.36 in the prior-year quarter [1][9] - The results were driven by increased net interest income and non-interest income, supported by growth in loan and deposit balances, although elevated non-interest expenses posed a challenge [1][14] Financial Performance - The company reported net income available to common shareholders of $164.6 million for Q4 2025, a 7.4% increase from $153.2 million in Q4 2024 [2] - For the full year 2025, adjusted earnings per share reached $9.92, surpassing the Zacks Consensus Estimate of $9.84, and increased from $8.88 in the previous year [2] - Total revenues for Q4 2025 were $603.4 million, exceeding the Zacks Consensus Estimate by 3% and improving from $556.44 million year-over-year [3] - Annual revenues for 2025 were $2.32 billion, beating the Zacks Consensus Estimate of $2.30 billion and up from $2.15 billion in 2024 [3] Income Breakdown - Net interest income (NII) rose 8.6% year-over-year to $471.2 million, with the net interest margin (NIM) expanding 13 basis points to 3.66% [4] - Non-interest income increased 7.6% year-over-year to $132.2 million, driven by higher trust and investment management fees, service charges, and increased income from derivatives trading [5] Expense Analysis - Non-interest expenses totaled $371.7 million, a 10.6% increase year-over-year, primarily due to higher salaries, employee benefits, and one-time expenses [6] - The increase in expenses was partially offset by a reversal related to a special FDIC insurance assessment [6] Loan and Deposit Growth - Total loans for Q4 2025 were $21.9 billion, reflecting a 2.1% increase from the prior quarter, while deposits were $43.3 billion, up nearly 1% sequentially [7] Credit Quality - Credit loss expenses for Q4 2025 were $11.2 million, down from $16.2 million in the prior-year quarter, with net charge-offs decreasing to $5.8 million from $14.0 million [8] - The allowance for credit losses on loans was 1.29% of total loans, slightly down from 1.30% a year ago [8] Capital and Profitability Ratios - As of December 31, 2025, the common equity Tier 1 risk-based capital ratio was 14.06%, up from 13.62% year-over-year [11] - Return on average assets was 1.24%, compared to 1.16% in the prior-year quarter, while return on average common equity was 15.66%, down from 15.81% [12] Shareholder Returns - The company declared a first-quarter cash dividend of $1.00 per common share, payable on March 13, 2026 [13] - In Q4, CFR repurchased 653,913 shares for $80.7 million, completing its $150 million share repurchase authorization for 2025 [13]

Core Insights - Cullen/Frost Bankers, Inc. has elected two new directors, Marsha M. Shields and Jeff Rummel, to its board of directors [1][2] Group 1: New Board Members - Marsha M. Shields is the CEO and Managing Partner of McCombs Enterprises, overseeing various businesses and holding significant positions in multiple organizations, including the McCombs Foundation and the Texas Biomedical Research Institute [2] - Jeff Rummel has over 37 years of experience at Ernst & Young, serving as managing partner of the San Antonio office and lead audit partner for publicly traded companies in the financial services sector [3] Group 2: Board Changes - Chris Avery, a director since 2015, will retire from the board when his term expires in April 2026, having contributed during significant initiatives and challenges, including the pandemic [4][5] Group 3: Company Overview - Cullen/Frost Bankers, Inc. is a financial holding company with $53 billion in assets as of December 31, 2025, and is one of the 50 largest U.S. banks by asset size, providing a full range of banking, investments, and insurance services [5]

Core Insights - Cullen/Frost Bankers reported strong financial performance in Q2 2025, with earnings of $155.3 million or $2.39 per share, an increase from $143.8 million or $2.21 per share in Q2 2024 [3][6] - The bank's expansion strategy has led to significant growth in deposits and loans, with $2.76 billion in deposits and $2.003 billion in loans generated, alongside nearly 69,000 new households [1][4][6] - Management provided updated guidance for 2025, forecasting net interest income growth of 6% to 7% and improvements in net interest margin (NIM) by 12 to 15 basis points [5][16] Financial Performance - Average deposits increased to $41.8 billion, up 3.1% from $40.5 billion a year earlier, while average loans rose to $21.1 billion, a 7.2% increase from $19.7 billion [2][6] - Return on average assets was reported at 1.22% and return on average common equity at 15.64%, compared to 1.18% and 17.08% in the previous year [3] Expansion Strategy - The bank opened its 200th location, the Pflugerville Financial Center, as part of its organic expansion strategy initiated in late 2018, increasing the financial center count from approximately 130 to 200 [2][4] - Management expects the expansion initiative to become accretive to earnings in 2026, with early expansion locations funding newer markets [7][6] Lending Activity - Consumer real estate portfolio grew by $600 million year-over-year, a 22% growth rate, driven by second-lien home equity products and a new mortgage offering [8] - Average commercial loan balances increased by $817 million, or 4.9%, year-over-year, with notable growth in commercial real estate (CRE) balances by 6.8% and energy balances by 22% [9][10] Credit Quality and Guidance - Credit quality remained strong, with non-performing assets declining to $64 million from $85 million at year-end, representing 30 basis points of period-end loans [12] - Total problem loans rose to $989 million, attributed mainly to criticized multifamily loans, with expectations for resolutions in the latter half of 2025 [13] Interest Margin and Funding - Net interest margin rose by 7 basis points sequentially to 3.67%, influenced by a shift from balances held at the Fed to higher-yielding loans and securities [14] - Average total deposits increased by $102 million sequentially to $41.76 billion, with the cost of interest-bearing deposits at 1.93% [15] Strategic Focus - The bank is focused on organic growth within Texas and is not pursuing bank mergers and acquisitions, believing this approach is less costly and avoids integration challenges [17]

Core Insights - The company is experiencing significant growth in both loans and deposits, with expansion efforts contributing positively to earnings expected in 2026 [1][2][29] - The average consumer deposits represent 46% of the total deposit base, with a year-over-year growth of 3.7% [1][3] - The company has opened its 200th location, indicating a strong commitment to expansion in key markets [3][11] Expansion and Growth - Since late 2018, the company has increased its financial centers by over 50%, generating $2.76 billion in deposits and $2.003 billion in loans [2][11] - The expansion has led to a year-over-year increase of $521 million in loans and $544 million in deposits, representing growth rates of 35.25% [2] - New commercial relationships from expansion regions accounted for 24% of all new commercial relationships [11] Financial Performance - In Q2 2025, the company reported earnings of $155.3 million, or $2.39 per share, compared to $143.8 million, or $2.21 per share, in the same quarter last year [4] - Average deposits in Q2 were $41.8 billion, a 3.1% increase from the previous year, while average loans grew to $21.1 billion, a 7.2% increase [3][4] - The net interest margin improved to 3.67%, up seven basis points from the previous quarter, driven by a shift to higher-yielding loans and securities [12][14] Loan and Deposit Trends - The consumer real estate loan portfolio grew by $600 million year-over-year, achieving a growth rate of 22% [5] - Average loan balances in the commercial sector increased by $817 million, or 4.9% year-over-year [6] - The company added nearly $2 billion in new loan commitments in Q2, a 56% increase from Q1 [7] Credit Quality and Risk Management - Overall credit quality remains strong, with nonperforming assets declining to $64 million from $85 million at year-end [8] - Net charge-offs for Q2 were $11.2 million, compared to $9.7 million in the previous quarter [8][9] - Total problem loans increased to $989 million, primarily related to multifamily loans, with expectations for resolutions in 2025 [9] Future Outlook - The company expects net interest income growth for the full year to be in the range of 6% to 7%, with an anticipated improvement in net interest margin of about 12 to 15 basis points [18] - Full-year average loan growth is projected to be in the mid to high single digits, while average deposits are expected to increase by 2% to 3% [19] - The effective tax rate for the full year remains unchanged at 16% to 17% [20]

Financial Data and Key Metrics Changes - In Q2 2025, Cullen Frost earned $155.3 million or $2.39 per share, compared to $143.8 million or $2.21 per share in the same quarter last year, representing a year-over-year increase of 8.8% in earnings [5] - Return on average assets was 1.22% and return on average common equity was 15.64%, compared to 1.18% and 17.08% in the same quarter last year [5] - Average deposits increased to $41.8 billion, up 3.1% from $40.5 billion in Q2 2024, while average loans grew to $21.1 billion, a 7.2% increase from $19.7 billion [6] Business Line Data and Key Metrics Changes - Consumer deposits grew by 3.7% year-over-year, with checking household growth at an industry-leading rate of 5.4% [9][10] - The commercial business saw average loan balances increase by $817 million or 4.9% year-over-year, with commercial real estate (CRE) balances growing by 6.8% and energy balances increasing by 22% [11] - The consumer real estate loan portfolio grew by $600 million year-over-year, representing a 22% growth rate [10] Market Data and Key Metrics Changes - The expansion efforts contributed to 37% of total loan growth and 44% of total deposit growth year-over-year [15] - The company opened its 200th location, indicating a significant expansion strategy in dynamic markets [6][7] - The overall credit quality remains strong, with non-performing assets declining to $64 million from $85 million at year-end [13] Company Strategy and Development Direction - The company continues to focus on organic growth through expansion in Texas, with no current plans for inorganic growth or M&A activity [84][88] - Management emphasizes a commitment to customer service and maintaining a strong capital base, prioritizing dividend protection [32][34] - The strategy is expected to yield earnings accretion in 2026, with a focus on long-term growth rather than immediate returns [41][44] Management's Comments on Operating Environment and Future Outlook - Management acknowledges increased competition in the lending market, particularly from smaller banks, but remains confident in their pricing strategy and customer relationships [30][113] - The company expects net interest income growth for the full year to be in the range of 6%-7%, despite anticipated Fed rate cuts [22][23] - There is optimism regarding deposit growth in the second half of the year, with expectations for seasonal trends to return [49][50] Other Important Information - The net interest margin improved to 3.67%, up 7 basis points from the previous quarter, driven by a shift towards higher-yielding loans and securities [17] - The investment portfolio averaged $20.4 billion during the quarter, with a taxable equivalent yield of 3.79% [19] - The company recorded a net unrealized loss on the available-for-sale portfolio of $1.42 billion, slightly up from $1.4 billion in the previous quarter [18] Q&A Session Summary Question: Loan growth and pricing competition - Management noted that competition has increased, particularly in commercial real estate, leading to price compression [30] Question: Capital growth and utilization - The focus remains on building capital and protecting dividends, with no immediate plans for stock repurchase [32][34] Question: Earnings growth and investment returns - Management expects to see benefits from investments in expansion starting in 2026, with a focus on long-term growth [41][44] Question: Deposit growth and trends - There is encouragement regarding the stabilization and potential growth of non-interest-bearing deposits in the second half of the year [49][50] Question: Non-interest income outlook - Management anticipates growth in non-interest income driven by increased customer volume and a healthier stock market [94][99]

Financial Data and Key Metrics Changes - In Q2 2025, Cullen/Frost earned $155.3 million or $2.39 per share, compared to $143.8 million or $2.21 per share in the same quarter last year, representing a year-over-year increase of 8.5% in earnings per share [5] - Return on average assets was 1.22% and return on average common equity was 15.64%, compared to 1.18% and 17.08% in the same quarter last year [5] - Average deposits increased to $41.8 billion, up 3.1% from $40.5 billion in Q2 2024, while average loans grew to $21.1 billion, a 7.2% increase from $19.7 billion [6] Business Line Data and Key Metrics Changes - Consumer deposits grew by 3.7% year-over-year, with checking household growth at an industry-leading rate of 5.4% [9][10] - The commercial business saw average loan balances increase by $817 million or 4.9% year-over-year, with commercial real estate (CRE) balances growing by 6.8% and energy balances increasing by 22% [11] - The consumer real estate loan portfolio grew by $600 million year-over-year, representing a 22% growth rate [10] Market Data and Key Metrics Changes - Expansion efforts contributed to 37% of total loan growth and 44% of total deposit growth year-over-year [15] - The expansion now represents 9.6% of company loans and 6.6% of company deposits [9] - New commercial relationships increased by 9% over the first quarter, with 1,060 new relationships recorded in Q2 [12] Company Strategy and Development Direction - The company continues to focus on organic growth through expansion in Texas, having opened its 200th location [6][7] - Management emphasizes a durable and scalable growth strategy, with plans to continue identifying new locations for expansion [9] - The company is not currently interested in pursuing M&A opportunities, preferring to focus on organic growth and customer service [86][87] Management's Comments on Operating Environment and Future Outlook - Management expects net interest income growth for the full year to fall in the range of 6%-7%, with net interest margin improvement of about 12-15 basis points [22][23] - The company anticipates that the rate of growth in expenses will decrease over time as investments in technology and expansion begin to pay off [43] - Management is optimistic about the economic outlook and expects to see benefits from expansion efforts in 2026 [41][45] Other Important Information - The net unrealized loss on the available-for-sale portfolio at the end of the quarter was $1.42 billion, slightly up from $1.4 billion in the previous quarter [18] - Non-interest income is expected to grow in the range of 3.5%-4.5%, an increase from prior guidance [23] Q&A Session Summary Question: What are the current trends in loan pricing and competition? - Management noted that competition has increased, particularly in commercial real estate, leading to price compression [30][31] Question: How is the company approaching capital growth and utilization? - The focus remains on building capital, with a priority on protecting dividends, and no immediate plans for stock repurchase [32][34] Question: When can shareholders expect to see benefits from recent investments? - Management expects accretion from expansion efforts to begin in 2026, with a gradual increase over time [41][45] Question: What is the outlook for deposit growth? - Management is optimistic about deposit growth in the second half of the year, with expectations for non-interest-bearing deposits to stabilize [49][50] Question: How does the company view M&A opportunities? - The company is not interested in pursuing M&A, focusing instead on organic growth strategies [86][87]